Spamford Wallace's MySpace riches come under attack

Analysis Anybody who says crime doesn't pay obviously hasn't talked to Sanford Wallace. In just six months' time, the prolific purveyor of spam and spyware engineered a scam on MySpace that netted at least $555,850, according to court documents filed this week.

The brazen scheme used a combination of malware and social engineering to push MySpace users onto porn- and gambling-related websites under Wallace's control. It began in late 2006, just months after Wallace and business associate Walter Rines settled charges related to spyware by agreeing to pay the Federal Trade Commission just $50,000 combined.

Now the FTC is trying to grow a pair. In a motion underscoring the difficulty of stopping spyware purveyors like Wallace, attorneys from the agency asked the federal judge overseeing the settlement to find the men in contempt for violating the terms of the settlement agreement. The commission seeks an order requiring the men to surrender their profits in the MySpace scheme.

"The contempt defendants repeatedly violated this court's permanent injunction by downloading computer code to MySpace users without their consent, 'pagejacking' or redirecting those users to websites that barrage them with advertisements, 'mousetrapping' or hindering those users from departing those websites to subject them to more advertisements, and 'phishing' for or otherwise capturing users' personal information without their consent," the motion reads.

Attempts to locate Wallace, Rines and their firm, Online Turbo Merchant, for comment were unsuccessful.

The Making of Spamelot

The saga began in September of 2005, when the FTC sued Rines and his now-defunct company, Odysseus Marketing. The complaint alleged they engaged in deceptive or unfair practices by secretly downloading spyware onto end-users' machines. Among other things, the drive-by installs subjected victims to pop-up ads, modified web browser search results and installed third-party programs without notice.

In late 2006, Rines and his cohorts entered into a settlement that ordered them to pay $1.75m, but the court agreed to suspend all but $10,000 of the penalty in light of the defendant's sworn inability to pay. In a separate action, a defendant affiliated with Wallace had been ordered to pay just $40,000. The parties in both cases agreed to a lengthy list of prohibitions that, among other things, prevented them from exploiting software vulnerabilities and required them to obtain consent before downloading software onto consumers' computers.

According to the FTC, the ink hadn't even dried on the agreement before Wallace and Rines were plotting a complex assault on MySpace. Wallace created more than 11,000 fraudulent profiles which he used to send large quantities of spam to legitimate users of the social networking site. He also set up pages that tricked users into revealing the log-in credentials for their accounts. Armed with this information, he used scripts that automatically accessed more than 300,000 accounts without permission so he could flood profile pages with at least 890,000 comments that linked to his websites. Wallace also took the liberty of bundling in code that prevented irate users from deleting the links.

The pages he linked to included freevegasclubs-dot-com and real-vegas-sins.com. They also contained so-called mousetrapping code, which made it hard for people who got redirected to them to leave.

According to a spreadsheet obtained by FTC investigators, the scheme generated at least $555,850 from advertising networks between November 21, 2006 and May 18, 2007. The actual amount is likely much higher, the motion argues.

Wallgotten Gains

It's been more than a decade since Wallace first unleashed his torrent of spam on the internet. After facing private lawsuits from AOL and CompuServe and Earthlink, he ultimately agreed to stop spamming and disband his Cyber Promotions outfit. Then, taking the low road, he embraced the more lucrative field of spyware and adware, and so far, no amount of lawsuits or enforcement actions has been able to stop him.

Ben Edelman, an assistant professor at Harvard Business School who studies online advertising fraud, says the FTC is constrained by federal statutes that prevent the agency from seeking criminal penalties or punitive fines. That leaves enforcers largely defanged because they can only go after ill-gotten proceeds.

"There's been a history of inadequate monetary judgments against spyware purveyors and other anti-consumer advertising cases," he said.

But Edelman holds out the possibility that this time Wallace may finally be stopped. Even if the FTC can't seek the kind of harsh penalties necessary to prevent people from getting into the spyware business, there's nothing stopping the agency from sharing its evidence against Wallace and others with the public. That, in turn, could aid lawyers representing private clients who aren't prevented from seeking, and winning, massive punitive fees that could bankrupt the defendants.

Last March MySpace sued Wallace, and four months later the company obtained a preliminary injunction that banished him from the social networking site.

It will be worth watching this latest action by the FTC to see if enforcers really have learned anything new. As things stand now, Wallace is an inspiration for countless aspiring cons throughout the world. The lesson: with a little experience writing code and enough determination, you can make a lot of money gumming up people's PCs, and there's little anyone can do about it.

A half million dollars is a decent chunk of change for six months' work. Until public enforcers and private attorneys figure out a way to remove these handsome rewards, the malware scourge is only going to get worse. ®